See accompanying notes to condensed consolidated financial statements.
See accompanying notes to condensed consolidated financial statements.
See accompanying notes to condensed consolidated financial statements.
See accompanying notes to condensed consolidated financial statements.
See accompanying notes to condensed consolidated financial statements.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Background
Unifi, Inc., a New York corporation formed in 1969 (together with its subsidiaries, “UNIFI,” the “Company,” “we,” “us” or “our”), is a multinational company that manufactures and sells innovative recycled and synthetic products, made from polyester and nylon, primarily to other yarn manufacturers and knitters and weavers (UNIFI’s “direct customers”) that produce yarn and/or fabric for the apparel, hosiery, home furnishings, automotive, industrial and other end-use markets (UNIFI’s “indirect customers”). We sometimes refer to these indirect customers as “brand partners.” Polyester products include partially oriented yarn (“POY”), textured, solution and package dyed, twisted, beamed and draw wound yarns, and each is available in virgin or recycled varieties. Recycled solutions, made from both pre-consumer and post-consumer waste, include plastic bottle flake (“Flake”), resin (or “Chip”) and staple fiber. Nylon products include virgin or recycled textured, solution dyed and spandex covered yarns.
UNIFI maintains one of the textile industry’s most comprehensive product offerings, which includes a range of specialized, value-added and commodity solutions, with principal geographic markets in the Americas, Asia and Europe. UNIFI has direct manufacturing operations in four countries and participates in joint ventures with operations in Israel and the United States (“U.S.”).
2. Basis of Presentation; Condensed Notes
The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. As contemplated by the instructions of the SEC to Form 10-Q, the following notes have been condensed and, therefore, do not contain all disclosures required in connection with annual financial statements. Reference should be made to UNIFI’s year-end audited consolidated financial statements and related notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended June 27, 2021 (the “2021 Form 10-K”).
The financial information included in this report has been prepared by UNIFI, without audit. In the opinion of management, all adjustments, which consist of normal, recurring adjustments, considered necessary for a fair statement of the results for interim periods have been included. Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year. The preparation of financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the amounts reported and certain financial statement disclosures. Actual results may vary from these estimates.
All amounts, except per share amounts, are presented in thousands (000s), except as otherwise noted.
The fiscal quarter for each of Unifi, Inc., its primary domestic operating subsidiaries and its subsidiary in El Salvador ended on March 27, 2022. Unifi, Inc.’s remaining material operating subsidiaries’ fiscal quarter ended on March 31, 2022. There were no significant transactions or events that occurred between Unifi, Inc.’s fiscal quarter end and such wholly owned subsidiaries’ subsequent fiscal quarter end. The three-month periods ended March 27, 2022 and March 28, 2021 both consisted of 13 weeks. The nine-month periods ended March 27, 2022 and March 28, 2021 both consisted of 39 weeks.
3. Recent Accounting Pronouncements
Based on UNIFI’s review of Accounting Standards Updates issued since the filing of the 2021 Form 10-K, there have been no newly issued or newly applicable accounting pronouncements that have had, or are expected to have, a material impact on UNIFI’s consolidated financial statements.
4. Revenue Recognition
The following tables present net sales grouped by (i) classification of sales type and (ii) REPREVE® Fiber sales:
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
March 27, 2022 |
|
|
March 28, 2021 |
|
|
March 27, 2022 |
|
|
March 28, 2021 |
|
Third-party manufacturer |
|
$ |
199,623 |
|
|
$ |
176,100 |
|
|
$ |
592,505 |
|
|
$ |
475,087 |
|
Service |
|
|
1,157 |
|
|
|
2,766 |
|
|
|
5,677 |
|
|
|
8,060 |
|
Net sales |
|
$ |
200,780 |
|
|
$ |
178,866 |
|
|
$ |
598,182 |
|
|
$ |
483,147 |
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
March 27, 2022 |
|
|
March 28, 2021 |
|
|
March 27, 2022 |
|
|
March 28, 2021 |
|
REPREVE® Fiber |
|
$ |
71,930 |
|
|
$ |
61,651 |
|
|
$ |
225,360 |
|
|
$ |
175,794 |
|
All other products and services |
|
|
128,850 |
|
|
|
117,215 |
|
|
|
372,822 |
|
|
|
307,353 |
|
Net sales |
|
$ |
200,780 |
|
|
$ |
178,866 |
|
|
$ |
598,182 |
|
|
$ |
483,147 |
|
Third-Party Manufacturer
Third-party manufacturer revenue is primarily generated through sales to direct customers. Such sales represent satisfaction of UNIFI’s performance obligations required by the associated revenue contracts. Each of UNIFI’s reportable segments derives revenue from sales to third-party manufacturers.
Service Revenue
Service revenue is primarily generated as services are rendered, through fulfillment of toll manufacturing of textile products or transportation services governed by written agreements. Such toll manufacturing and transportation services represent satisfaction of UNIFI’s performance obligations required by the associated revenue contracts.
6
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
REPREVE® Fiber
REPREVE® Fiber represents our collection of fiber products on our recycled platform, with or without added technologies.
Beginning in the fourth quarter of fiscal 2021, as a result of its annual review of products meeting the REPREVE® Fiber definition, UNIFI began including certain product sales in the Asia Segment that were previously excluded from the REPREVE® Fiber sales metric. The prior periods have been adjusted to reflect such sales and the amount reclassed was not material.
Variable Consideration
For all variable consideration, where appropriate, UNIFI estimates the amount using the expected value method, which takes into consideration historical experience, current contractual requirements, specific known market events and forecasted customer buying and payment patterns. Overall, these reserves reflect UNIFI’s best estimates of the amount of consideration to which the customer is entitled based on the terms of the contracts. Variable consideration has been immaterial to UNIFI’s financial statements for all periods presented.
5. Receivables, Net
Receivables, net consists of the following:
|
|
March 27, 2022 |
|
|
June 27, 2021 |
|
Customer receivables |
|
$ |
103,347 |
|
|
$ |
81,921 |
|
Allowance for uncollectible accounts |
|
|
(2,071 |
) |
|
|
(2,525 |
) |
Reserves for quality claims |
|
|
(778 |
) |
|
|
(703 |
) |
Net customer receivables |
|
|
100,498 |
|
|
|
78,693 |
|
Other receivables |
|
|
9,033 |
|
|
|
16,144 |
|
Total receivables, net |
|
$ |
109,531 |
|
|
$ |
94,837 |
|
Other receivables includes $8,346 and $13,391 of banker’s acceptance notes (“BANs”) as of March 27, 2022 and June 27, 2021, respectively, in connection with the settlement of certain customer receivables generated from trade activity in the Asia Segment. The BANs are redeemable upon maturity from the drawing financial institutions, or earlier at a discount.
6. Inventories
Inventories consists of the following:
|
|
March 27, 2022 |
|
|
June 27, 2021 |
|
Raw materials |
|
$ |
66,127 |
|
|
$ |
54,895 |
|
Supplies |
|
|
11,429 |
|
|
|
10,692 |
|
Work in process |
|
|
10,598 |
|
|
|
7,516 |
|
Finished goods |
|
|
78,184 |
|
|
|
70,525 |
|
Gross inventories |
|
|
166,338 |
|
|
|
143,628 |
|
Net realizable value adjustment |
|
|
(2,958 |
) |
|
|
(2,407 |
) |
Total inventories |
|
$ |
163,380 |
|
|
$ |
141,221 |
|
7. Other Current Assets
Other current assets consist of the following:
|
|
March 27, 2022 |
|
|
June 27, 2021 |
|
Vendor deposits |
|
$ |
5,168 |
|
|
$ |
3,341 |
|
Value-added taxes receivable |
|
|
2,701 |
|
|
|
2,484 |
|
Prepaid expenses and other |
|
|
3,001 |
|
|
|
2,753 |
|
Recovery of non-income taxes, net |
|
|
9,600 |
|
|
|
3,456 |
|
Contract assets |
|
|
508 |
|
|
|
330 |
|
Total other current assets |
|
$ |
20,978 |
|
|
$ |
12,364 |
|
7
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Recovery of Non-Income Taxes, Net
Brazilian companies are subject to various taxes on business operations, including turnover taxes used to fund social security and unemployment programs, commonly referred to as PIS/COFINS taxes. UNIFI, along with numerous other companies in Brazil, challenged the constitutionality of certain state taxes historically included in the PIS/COFINS tax base.
On May 13, 2021, Brazil’s Supreme Federal Court (“SFC”) ruled in favor of taxpayers, and on July 7, 2021, the Brazilian Internal Revenue Service withdrew its existing appeal. Following the SFC decision, the federal government will not issue refunds for these taxes but will instead allow for the overpayments and associated interest to be applied as credits against future PIS/COFINS tax obligations.
There are no limitations or restrictions on UNIFI’s ability to recover the associated overpayment claims as future income is generated. In fiscal 2021, UNIFI recognized an estimated benefit from the expected recovery of these non-income taxes in Brazil. During the quarter ended March 27, 2022, UNIFI (i) reduced the estimate based on additional clarity and review of the recovery process during the months following the associated SFC decision and (ii) updated the expected duration of claim recovery to the 12-month period following March 27, 2022. The remaining estimated recovery amount has been reclassed to current assets accordingly, with no amounts reflected in other non-current assets at March 27, 2022.
8. Property, Plant and Equipment, Net
Property, plant and equipment (“PP&E”), net consists of the following:
|
|
March 27, 2022 |
|
|
June 27, 2021 |
|
Land |
|
$ |
3,200 |
|
|
$ |
3,184 |
|
Land improvements |
|
|
16,443 |
|
|
|
16,372 |
|
Buildings and improvements |
|
|
161,557 |
|
|
|
160,122 |
|
Assets under finance leases |
|
|
22,882 |
|
|
|
22,000 |
|
Machinery and equipment |
|
|
622,758 |
|
|
|
609,414 |
|
Computers, software and office equipment |
|
|
25,717 |
|
|
|
24,848 |
|
Transportation equipment |
|
|
10,542 |
|
|
|
10,461 |
|
Construction in progress |
|
|
24,568 |
|
|
|
17,834 |
|
Gross PP&E |
|
|
887,667 |
|
|
|
864,235 |
|
Less: accumulated depreciation |
|
|
(665,100 |
) |
|
|
(656,576 |
) |
Less: accumulated amortization – finance leases |
|
|
(7,489 |
) |
|
|
(5,963 |
) |
Total PP&E, net |
|
$ |
215,078 |
|
|
$ |
201,696 |
|
9. Other Non-Current Assets
Other non-current assets were immaterial at March 27, 2022 and June 27, 2021. Included within Other non-current assets are UNIFI’s investments in unconsolidated affiliates: U.N.F. Industries, Ltd. (“UNF”); and UNF America LLC (“UNFA”) (collectively “UNFs”).
U.N.F. Industries, Ltd.
Raw material and production services for UNF are provided by Nilit Ltd. under separate supply and services agreements. UNF’s fiscal year end is December 31, and it is a registered Israeli private company located in Migdal Ha-Emek, Israel.
UNF America LLC
Raw material and production services for UNFA are provided by Nilit America Inc. under separate supply and services agreements. UNFA’s fiscal year end is December 31, and it is a limited liability company located in Ridgeway, Virginia. UNFA is treated as a partnership for its income tax reporting.
In conjunction with the formation of UNFA, UNIFI entered into a supply agreement with UNF and UNFA whereby UNIFI agreed to purchase all of its first quality nylon POY requirements for texturing (subject to certain exceptions) from either UNF or UNFA. The supply agreement has no stated minimum purchase quantities and pricing is typically negotiated every six months, based on market rates. As of March 27, 2022, UNIFI’s open purchase orders related to this supply agreement were $2,079.
UNIFI’s raw material purchases under this supply agreement consisted of the following:
|
|
For the Nine Months Ended |
|
|
|
March 27, 2022 |
|
|
March 28, 2021 |
|
UNFA |
|
$ |
20,849 |
|
|
$ |
13,677 |
|
UNF |
|
|
239 |
|
|
|
548 |
|
Total |
|
$ |
21,088 |
|
|
$ |
14,225 |
|
As of March 27, 2022 and June 27, 2021, UNIFI had combined accounts payable due to UNF and UNFA of $5,167 and $2,955, respectively.
UNIFI has determined that UNF and UNFA are variable interest entities and that UNIFI is the primary beneficiary of these entities, based on the terms of the supply agreement discussed above. As a result, these entities should be consolidated with UNIFI’s financial results. As (i) UNIFI purchases
8
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
substantially all of the output from the two entities; (ii) the two entities’ balance sheets constitute 3% or less of UNIFI’s current assets, total assets, and total liabilities at each of UNIFI’s fiscal year ends; and (iii) such balances are not expected to comprise a larger portion in the future, UNIFI has not included the accounts of UNF and UNFA in its consolidated financial statements. The financial results of UNF and UNFA are included in UNIFI’s consolidated financial statements with a one-month lag, using the equity method of accounting and with intercompany profits eliminated in accordance with UNIFI’s accounting policy. Other than the supply agreement discussed above, UNIFI does not provide any other commitments or guarantees related to either UNF or UNFA.
Condensed balance sheet and income statement information for UNIFI’s unconsolidated affiliates (including reciprocal balances) are presented in the tables below.
|
|
March 27, 2022 |
|
|
June 27, 2021 |
|
Current assets |
|
$ |
9,263 |
|
|
$ |
7,931 |
|
Non-current assets |
|
|
634 |
|
|
|
659 |
|
Current liabilities |
|
|
6,969 |
|
|
|
3,967 |
|
Non-current liabilities |
|
|
— |
|
|
|
— |
|
Shareholders’ equity and capital accounts |
|
|
2,928 |
|
|
|
4,623 |
|
|
|
|
|
|
|
|
|
|
UNIFI’s portion of undistributed earnings |
|
|
1,715 |
|
|
|
2,100 |
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
March 27, 2022 |
|
|
March 28, 2021 |
|
|
March 27, 2022 |
|
|
March 28, 2021 |
|
Net sales |
$ |
8,816 |
|
|
$ |
5,983 |
|
|
$ |
22,301 |
|
|
$ |
13,847 |
|
Gross profit |
|
487 |
|
|
|
1,047 |
|
|
|
1,059 |
|
|
|
2,580 |
|
Income (loss) from operations |
|
60 |
|
|
|
629 |
|
|
|
(194 |
) |
|
|
1,348 |
|
Net income (loss) |
|
54 |
|
|
|
630 |
|
|
|
(199 |
) |
|
|
1,353 |
|
Depreciation and amortization |
|
29 |
|
|
|
38 |
|
|
|
93 |
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions received |
|
750 |
|
|
|
— |
|
|
|
750 |
|
|
|
— |
|
10. Other Current Liabilities
Other current liabilities consists of the following:
|
|
March 27, 2022 |
|
|
June 27, 2021 |
|
Payroll and fringe benefits |
|
$ |
8,830 |
|
|
$ |
10,204 |
|
Incentive compensation |
|
|
3,283 |
|
|
|
12,356 |
|
Deferred revenue |
|
|
2,810 |
|
|
|
2,691 |
|
Interest rate swaps |
|
|
168 |
|
|
|
1,234 |
|
Current portion of supplemental post-employment plan |
|
|
20 |
|
|
|
1,087 |
|
Other |
|
|
3,695 |
|
|
|
4,066 |
|
Total other current liabilities |
|
$ |
18,806 |
|
|
$ |
31,638 |
|
11. Long-Term Debt
Debt Obligations
The following table presents the total balances outstanding for UNIFI’s debt obligations, their scheduled maturity dates and the weighted average interest rates for borrowings as well as the applicable current portion of long-term debt:
|
|
|
|
Weighted Average |
|
|
|
|
|
Scheduled |
|
Interest Rate as of |
|
Principal Amounts as of |
|
|
|
Maturity Date |
|
March 27, 2022 |
|
March 27, 2022 |
|
|
June 27, 2021 |
|
ABL Revolver |
|
December 2023 |
|
|
2.0 |
% |
|
|
$ |
18,500 |
|
|
$ |
— |
|
ABL Term Loan |
|
December 2023 |
|
|
3.2 |
% |
(1) |
|
|
70,000 |
|
|
|
77,500 |
|
Finance lease obligations |
|
(2) |
|
|
3.5 |
% |
|
|
|
7,363 |
|
|
|
8,475 |
|
Construction financing |
|
(3) |
|
|
1.5 |
% |
|
|
|
1,458 |
|
|
|
882 |
|
Total debt |
|
|
|
|
|
|
|
|
|
97,321 |
|
|
|
86,857 |
|
Current ABL Term Loan |
|
|
|
|
|
|
|
|
|
(12,500 |
) |
|
|
(12,500 |
) |
Current portion of finance lease obligations |
|
|
|
|
|
|
|
|
|
(2,009 |
) |
|
|
(3,545 |
) |
Unamortized debt issuance costs |
|
|
|
|
|
|
|
|
|
(307 |
) |
|
|
(476 |
) |
Total long-term debt |
|
|
|
|
|
|
|
|
$ |
82,505 |
|
|
$ |
70,336 |
|
(1) |
Includes the effects of interest rate swaps. |
(2) |
Scheduled maturity dates for finance lease obligations range from May 2022 to November 2027. |
(3) |
Refer to the discussion below under the subheading “Construction Financing” for further information. |
9
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
ABL Facility
On December 18, 2018, Unifi, Inc. and certain of its subsidiaries entered into a Third Amendment to Amended and Restated Credit Agreement and Second Amendment to Amended and Restated Guaranty and Security Agreement (the “2018 Amendment”). The 2018 Amendment amended the Amended and Restated Credit Agreement, dated as of March 26, 2015, by and among Unifi, Inc. and a syndicate of lenders, as previously amended (together with all previous and subsequent amendments, the “Credit Agreement”). The Credit Agreement provides for a $200,000 senior secured credit facility (the “ABL Facility”), including a $100,000 revolving credit facility (the “ABL Revolver”) and a term loan that can be reset up to a maximum amount of $100,000, once per fiscal year, if certain conditions are met (the “ABL Term Loan”). The ABL Facility has a maturity date of December 18, 2023.
ABL Facility borrowings bear interest at LIBOR plus an applicable margin of 1.25% to 1.75%, or the Base Rate (as defined in the Credit Agreement) plus an applicable margin of 0.25% to 0.75%, with interest currently being paid on a monthly basis.
UNIFI currently maintains three interest rate swaps as cash flow hedges intended to fix LIBOR at approximately 1.9% on $75,000 of variable-rate debt. Such swaps are scheduled to terminate in May 2022. During the quarter ended December 26, 2021, UNIFI’s outstanding variable-rate debt fell below the combined $75,000 notional amount. Accordingly, the $20,000 notional interest rate swap was de-designated from hedge accounting treatment. The impact of de-designation was not material.
Construction Financing
In May 2021, UNIFI entered into an agreement with a third party lender that provides for construction-period financing for certain eAFK Evo texturing machinery included in our capital allocation plans. UNIFI records project costs to construction in progress and the corresponding liability to construction financing (within long-term debt). The agreement provides for monthly, interest-only payments during the construction period, at a rate of SOFR plus 1.25%, and contains terms customary for a financing of this type.
Each borrowing under the agreement provides for 60 monthly payments, which will commence in the form of a finance lease obligation upon the completion of the construction period with an interest rate of approximately 3.4%. In connection with this construction financing arrangement, we have borrowed a total of $3,222 and transitioned a total of $1,764 of completed asset costs to finance lease obligations as of March 27, 2022.
Scheduled Debt Maturities
The following table presents the scheduled maturities of UNIFI’s outstanding debt obligations for the remainder of fiscal 2022, the following four fiscal years and thereafter:
|
|
Fiscal 2022 |
|
|
Fiscal 2023 |
|
|
Fiscal 2024 |
|
|
Fiscal 2025 |
|
|
Fiscal 2026 |
|
|
Thereafter |
|
ABL Revolver |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
18,500 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
ABL Term Loan |
|
|
5,000 |
|
|
|
10,000 |
|
|
|
55,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Finance lease obligations |
|
|
820 |
|
|
|
1,592 |
|
|
|
1,648 |
|
|
|
1,553 |
|
|
|
1,102 |
|
|
|
648 |
|
Total (1) |
|
$ |
5,820 |
|
|
$ |
11,592 |
|
|
$ |
75,148 |
|
|
$ |
1,553 |
|
|
$ |
1,102 |
|
|
$ |
648 |
|
|
(1) |
Total reported excludes $1,458 of construction financing, described above. |
12. Other Long-Term Liabilities
Other long-term liabilities consists of the following:
|
|
March 27, 2022 |
|
|
June 27, 2021 |
|
Uncertain tax positions |
|
$ |
3,565 |
|
|
$ |
3,045 |
|
Supplemental post-employment plan |
|
|
2,328 |
|
|
|
2,090 |
|
Other |
|
|
822 |
|
|
|
2,337 |
|
Total other long-term liabilities |
|
$ |
6,715 |
|
|
$ |
7,472 |
|
13. Income Taxes
The provision for income taxes and effective tax rate were as follows:
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
March 27, 2022 |
|
|
March 28, 2021 |
|
|
March 27, 2022 |
|
|
March 28, 2021 |
|
Provision for income taxes |
|
$ |
2,698 |
|
|
$ |
3,660 |
|
|
$ |
10,296 |
|
|
$ |
7,593 |
|
Effective tax rate |
|
|
56.6 |
% |
|
|
43.5 |
% |
|
|
46.9 |
% |
|
|
32.7 |
% |
U.S. Tax Law Change
On July 20, 2020, the U.S. Treasury issued and enacted final regulations related to global intangible low-tax income (“GILTI”) that allow certain U.S. taxpayers to elect to exclude foreign income that is subject to a high effective tax rate from their GILTI inclusions. The GILTI high-tax exclusion is an annual election and is retroactively available for tax years beginning after December 31, 2017. The three-month and nine-month periods ended March 28, 2021 includes a discrete tax expense (benefit) of $273 and $(4,874), respectively, related to this election.
10
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Valuation Allowance
UNIFI regularly assesses whether it is more-likely-than-not that some portion or all of its deferred tax assets will not be realized. UNIFI considers the scheduled reversal of taxable temporary differences, taxable income in carryback years, projected future taxable income and tax planning strategies in making this assessment. Since UNIFI operates in multiple jurisdictions, the assessment is made on a jurisdiction-by-jurisdiction basis, taking into consideration the effects of local tax law. The three-month and nine-month periods ended March 28, 2021 includes discrete tax (benefit) expense of $(133) and $1,508, respectively, for a change in valuation allowance related to the GILTI regulations enacted during that period.
Income Tax Expense
UNIFI’s provision for income taxes for the nine months ended March 27, 2022 and March 28, 2021 was calculated by applying the estimated annual effective tax rate to year-to-date pre-tax book income and adjusting for discrete items that occurred during the period.
The effective tax rate for the three months and nine months ended March 27, 2022 was higher than the U.S. federal statutory rate primarily due to an increase in the valuation allowance for deferred tax assets, earnings taxed at higher rates in foreign jurisdictions, and deferred tax on unremitted earnings.
The effective tax rate for the three months ended March 28, 2021 was higher than the U.S. federal statutory rate primarily due to current U.S. tax on GILTI and earnings taxed at higher rates in foreign jurisdictions. These rate impacts were partially offset by additional research credits claimed during the period. The effective tax rate for the nine months ended March 28, 2021 was higher than the U.S. federal statutory rate primarily due to current U.S. tax on GILTI, the change in valuation allowance for deferred tax assets, and earnings taxed at higher rates in foreign jurisdictions. These rate impacts were partially offset by the retroactive GILTI high-tax exclusion for prior periods, and additional R&D credits claimed during the current period.
Unrecognized Tax Benefits
UNIFI regularly assesses the outcomes of both completed and ongoing examinations to ensure that its provision for income taxes is sufficient. Certain returns that remain open to examination have utilized carryforward tax attributes generated in prior tax years, including net operating losses, which could potentially be revised upon examination.
14. Shareholders’ Equity
On October 31, 2018, UNIFI announced that its Board of Directors (the “Board”) approved a share repurchase program (the “2018 SRP”) under which UNIFI is authorized to acquire up to $50,000 of its common stock. Under the 2018 SRP, purchases may be made from time to time in the open market at prevailing market prices, through private transactions or block trades. The timing and amount of repurchases will depend on market conditions, share price, applicable legal requirements and other factors. The share repurchase authorization is discretionary and has no expiration date. Repurchases, if any, are expected to be financed through cash generated from operations and borrowings under the ABL Revolver, and are subject to applicable limitations and restrictions as set forth in the ABL Facility. UNIFI may discontinue repurchases at any time that management determines additional purchases are not beneficial or advisable.
The following table summarizes UNIFI’s repurchases and retirements of its common stock under the 2018 SRP for the fiscal periods noted:
|
|
Total Number
of Shares
Repurchased as
Part of Publicly
Announced Plans
or Programs |
|
|
Average Price
Paid per Share |
|
|
Approximate Dollar
Value that May
Yet Be Repurchased
Under Publicly
Announced Plans
or Programs |
|
Fiscal 2019 |
|
|
— |
|
|
$ |
— |
|
|
$ |
50,000 |
|
Fiscal 2020 |
|
|
84 |
|
|
$ |
23.72 |
|
|
$ |
48,008 |
|
Fiscal 2021 |
|
|
— |
|
|
$ |
— |
|
|
$ |
48,008 |
|
Fiscal 2022 (through March 27, 2022) |
|
|
102 |
|
|
$ |
21.22 |
|
|
$ |
45,854 |
|
Total |
|
|
186 |
|
|
$ |
22.35 |
|
|
$ |
45,854 |
|
Repurchased shares are retired and have the status of authorized and unissued shares. The cost of the repurchased shares is recorded as a reduction to common stock to the extent of the par value of the shares acquired and the remainder is allocated between capital in excess of par value and retained earnings, on a pro rata basis.
11
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
15. Stock-Based Compensation
On October 29, 2020, UNIFI’s shareholders approved the Unifi, Inc. Second Amended and Restated 2013 Incentive Compensation Plan (the “2020 Plan”). The 2020 Plan set the number of shares available for future issuance pursuant to awards granted under the 2020 Plan to 850. No additional awards can be granted under prior plans; however, awards outstanding under a respective prior plan remain subject to that plan’s provisions.
The following table provides the number of awards remaining available for future issuance under the 2020 Plan as of March 27, 2022:
Authorized under the 2020 Plan |
|
|
850 |
|
Plus: Awards expired, forfeited or otherwise terminated unexercised |
|
|
1 |
|
Less: Awards granted to employees |
|
|
(209 |
) |
Less: Awards granted to non-employee directors |
|
|
(41 |
) |
Available for issuance under the 2020 Plan |
|
|
601 |
|
Stock-based compensation units granted or issued were as follows:
|
|
For the Nine Months Ended |
|
|
|
March 27, 2022 |
|
|
March 28, 2021 |
|
Stock options |
|
|
— |
|
|
|
155 |
|
Restricted stock units |
|
|
81 |
|
|
|
110 |
|
Performance share units |
|
|
53 |
|
|
|
— |
|
Vested share units |
|
|
32 |
|
|
|
— |
|
Common stock |
|
|
5 |
|
|
|
4 |
|
On October 27, 2021, UNIFI’s shareholders approved the Unifi, Inc. Employee Stock Purchase Plan (the “ESPP”) as described in Unifi, Inc.’s definitive proxy statement on Schedule 14A filed with the SEC on September 2, 2021. The ESPP reserved 100 Company shares, is intended to be a qualified plan under applicable tax law, and allows eligible employees to purchase Company shares at a 15% discount from market value.
16. Fair Value of Financial Instruments and Non-Financial Assets and Liabilities
UNIFI uses derivative financial instruments such as foreign currency forward contracts or interest rate swaps to reduce its ongoing business exposures to fluctuations in foreign currency exchange rates or interest rates. UNIFI does not enter into derivative contracts for speculative purposes.
The following table presents details regarding UNIFI’s hedging activities:
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
March 27, 2022 |
|
|
March 28, 2021 |
|
|
March 27, 2022 |
|
|
March 28, 2021 |
|
Interest expense |
|
$ |
709 |
|
|
$ |
885 |
|
|
$ |
2,140 |
|
|
$ |
2,589 |
|
Increase in fair value of interest rate swaps |
|
|
(484 |
) |
|
|
(324 |
) |
|
|
(1,066 |
) |
|
|
(989 |
) |
Impact of interest rate swaps to increase interest expense |
|
|
336 |
|
|
|
339 |
|
|
|
1,029 |
|
|
|
1,003 |
|
For the nine months ended March 27, 2022 and March 28, 2021, there were no significant changes to UNIFI’s assets and liabilities measured at fair value, and there were no transfers into or out of the levels of the fair value hierarchy.
As described in Note 11, “Long Term Debt,” UNIFI de-designated a $20,000 interest rate swap from hedge accounting treatment during the quarter ended December 26, 2021. The impact of de-designation was not material.
UNIFI believes that there have been no significant changes to its credit risk profile or the interest rates available to UNIFI for debt issuances with similar terms and average maturities, and UNIFI estimates that the fair values of its debt obligations approximate the carrying amounts. Other financial instruments include cash and cash equivalents, receivables, accounts payable and accrued expenses. The financial statement carrying amounts of these items approximate the fair values due to their short-term nature.
17. Accumulated Other Comprehensive Loss
The components of and the changes in accumulated other comprehensive loss, net of tax, as applicable, consist of the following:
|
|
Foreign
Currency
Translation
Adjustments |
|
|
Changes in Interest
Rate Swaps |
|
|
Accumulated
Other
Comprehensive
Loss |
|
Balance at June 27, 2021 |
|
$ |
(52,480 |
) |
|
$ |
(952 |
) |
|
$ |
(53,432 |
) |
Other comprehensive income |
|
|
5,833 |
|
|
|
803 |
|
|
|
6,636 |
|
Balance at March 27, 2022 |
|
$ |
(46,647 |
) |
|
$ |
(149 |
) |
|
$ |
(46,796 |
) |
A summary of the after-tax effects of the components of other comprehensive income, net for the three-month and nine-month periods ended March 27, 2022 and March 28, 2021 is included in the accompanying condensed consolidated statements of comprehensive income.
12
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
18. Earnings Per Share
The components of the calculation of earnings per share (“EPS”) are as follows:
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
March 27, 2022 |
|
|
March 28, 2021 |
|
|
March 27, 2022 |
|
|
March 28, 2021 |
|
Net income |
|
$ |
2,066 |
|
|
$ |
4,758 |
|
|
$ |
11,675 |
|
|
$ |
15,654 |
|
Basic weighted average shares |
|
|
18,473 |
|
|
|
18,485 |
|
|
|
18,500 |
|
|
|
18,465 |
|
Net potential common share equivalents |
|
|
469 |
|
|
|
482 |
|
|
|
474 |
|
|
|
331 |
|
Diluted weighted average shares |
|
|
18,942 |
|
|
|
18,967 |
|
|
|
18,974 |
|
|
|
18,796 |
|
Excluded from the calculation of common share equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive common share equivalents |
|
|
443 |
|
|
|
287 |
|
|
|
330 |
|
|
|
557 |
|
Excluded from the calculation of diluted shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested stock options that vest upon achievement of certain market conditions |
|
|
333 |
|
|
|
333 |
|
|
|
333 |
|
|
|
333 |
|
The calculation of EPS is based on the weighted average number of Unifi, Inc.’s common shares outstanding for the applicable period. The calculation of diluted EPS presents the effect of all potential dilutive common shares that were outstanding during the respective period, unless the effect of doing so is anti-dilutive.
19. Commitments and Contingencies
Collective Bargaining Agreements
While employees of UNIFI’s Brazilian operations are unionized, none of the labor force employed by UNIFI’s domestic or other foreign subsidiaries is currently covered by a collective bargaining agreement.
Environmental
On September 30, 2004, Unifi Kinston, LLC (“UK”), a subsidiary of Unifi, Inc., completed its acquisition of polyester filament manufacturing assets located in Kinston, North Carolina (“Kinston”) from Invista S.a.r.l. (“INVISTA”). The land for the Kinston site was leased pursuant to a 99-year ground lease (the “Ground Lease”) with E.I. DuPont de Nemours (“DuPont”). Since 1993, DuPont has been investigating and cleaning up the Kinston site under the supervision of the U.S. Environmental Protection Agency and the North Carolina Department of Environmental Quality (“DEQ”) pursuant to the Resource Conservation and Recovery Act Corrective Action program. The program requires DuPont to identify all potential areas of environmental concern (“AOCs”), assess the extent of containment at the identified AOCs and remediate the AOCs to comply with applicable regulatory standards. Effective March 20, 2008, UK entered into a lease termination agreement associated with conveyance of certain assets at the Kinston site to DuPont. This agreement terminated the Ground Lease and relieved UK of any future responsibility for environmental remediation, other than participation with DuPont, if so called upon, with regard to UK’s period of operation of the Kinston site, which was from 2004 to 2008. At this time, UNIFI has no basis to determine if or when it will have any responsibility or obligation with respect to the AOCs or the extent of any potential liability for the same. UK continues to own property (the “Kentec site”) acquired in the 2004 transaction with INVISTA that has contamination from DuPont’s prior operations and is monitored by DEQ. The Kentec site has been remediated by DuPont, and DuPont has received authority from DEQ to discontinue further remediation, other than natural attenuation. Prior to transfer of responsibility to UK, DuPont and UK had a duty to monitor and report the environmental status of the Kentec site to DEQ. Effective April 10, 2019, UK assumed sole remediator responsibility of the Kentec site pursuant to its contractual obligations with INVISTA and received $180 of net monitoring and reporting costs due from DuPont. In connection with monitoring, UK expects to sample and report to DEQ annually. At this time, UNIFI does not expect any active site remediation will be required but expects that any costs associated with active site remediation, if ever required, would likely be immaterial.
20. Related Party Transactions
There were no related party receivables as of March 27, 2022 or June 27, 2021.
Related party payables for Salem Leasing Corporation consisted of the following:
|
|
March 27, 2022 |
|
|
June 27, 2021 |
|
Accounts payable |
|
$ |
455 |
|
|
$ |
469 |
|
Operating lease obligations |
|
|
890 |
|
|
|
1,133 |
|
Finance lease obligations |
|
|
5,242 |
|
|
|
6,149 |
|
Total related party payables |
|
$ |
6,587 |
|
|
$ |
7,751 |
|
13
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The following were the Company’s significant related party transactions:
|
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
Affiliated Entity |
|
Transaction Type |
|
March 27, 2022 |
|
|
March 28, 2021 |
|
|
March 27, 2022 |
|
|
March 28, 2021 |
|
Salem Leasing Corporation |
|
Payments for transportation equipment costs and finance lease debt service |
|
$ |
1,030 |
|
|
$ |
1,236 |
|
|
$ |
3,117 |
|
|
$ |
3,099 |
|
21. Business Segment Information
UNIFI defines operating segments as components of the organization for which discrete financial information is available and operating results are evaluated on a regular basis by UNIFI’s principal executive officer, who is the chief operating decision maker (the “CODM”), in order to assess performance and allocate resources. Characteristics of UNIFI which were relied upon in making the determination of reportable segments include the nature of the products sold, the internal organizational structure, the trade policies in the geographic regions in which UNIFI operates and the information that is regularly reviewed by the CODM for the purpose of assessing performance and allocating resources.
UNIFI has four reportable segments.
|
• |
The operations within the Polyester Segment exhibit similar long-term economic characteristics and primarily sell into an economic trading zone covered by the USMCA, NAFTA and CAFTA (collectively, the regions comprising these economic trading zones are referred to as “NACA”) to similar customers utilizing similar methods of distribution. These operations derive revenues primarily from manufacturing polyester-based products with sales primarily to other yarn manufacturers and knitters and weavers that produce yarn and/or fabric for the apparel, hosiery, automotive, home furnishings, industrial and other end-use markets. The Polyester Segment consists of sales and manufacturing operations in the U.S. and El Salvador. |
|
• |
The operations within the Asia Segment exhibit similar long-term economic characteristics and sell to similar customers utilizing similar methods of distribution primarily in Asia and Europe, which are outside of the NACA region. The Asia Segment primarily sources polyester-based products from third-party suppliers and sells to other yarn manufacturers, knitters and weavers that produce fabric for the apparel, automotive, home furnishings, industrial and other end-use markets principally in Asia. The Asia Segment includes sales offices in China. |
|
• |
The Brazil Segment primarily manufactures and sells polyester-based products to knitters and weavers that produce fabric for the apparel, automotive, home furnishings, industrial and other end-use markets principally in South America. The Brazil Segment includes a manufacturing location and sales offices in Brazil. |
|
• |
The operations within the Nylon Segment exhibit similar long-term economic characteristics and primarily sell into the NACA region to similar customers utilizing similar methods of distribution. These operations derive revenues primarily from manufacturing nylon-based products with sales to knitters and weavers that produce fabric primarily for the apparel, hosiery and medical markets. The Nylon Segment includes an immaterial operating segment in Colombia that sells similar nylon-based textile products to similar customers in Colombia and Mexico utilizing similar methods of distribution. The Nylon Segment consists of sales and manufacturing operations in the U.S. and Colombia. |
In addition to UNIFI’s reportable segments, an All Other category is included in the tables below. All Other consists primarily of for-hire transportation services. For-hire transportation services revenue is derived from performing common carrier services utilizing UNIFI’s fleet of transportation equipment.
The operations within All Other (i) are not subject to review by the CODM at a level consistent with UNIFI’s other operations, (ii) are not regularly evaluated using the same metrics applied to UNIFI’s other operations, and (iii) do not qualify for aggregation with an existing reportable segment. Therefore, such operations are excluded from reportable segments.
UNIFI evaluates the operating performance of its segments based upon Segment Profit, which represents segment gross profit (loss) plus segment depreciation expense. This measurement of segment profit or loss best aligns segment reporting with the current assessments and evaluations performed by, and information provided to, the CODM.
The accounting policies for the segments are consistent with UNIFI’s accounting policies. Intersegment sales are omitted from segment disclosures, as they are (i) insignificant to UNIFI’s segments and eliminated from consolidated reporting and (ii) excluded from segment evaluations performed by the CODM.
Selected financial information is presented below:
|
|
For the Three Months Ended March 27, 2022 |
|
|
|
Polyester |
|
|
Asia |
|
|
Brazil |
|
|
Nylon |
|
|
All Other |
|
|
Total |
|
Net sales |
|
$ |
93,924 |
|
|
$ |
51,277 |
|
|
$ |
29,767 |
|
|
$ |
24,689 |
|
|
$ |
1,123 |
|
|
$ |
200,780 |
|
Cost of sales |
|
|
90,043 |
|
|
|
43,900 |
|
|
|
23,784 |
|
|
|
22,925 |
|
|
|
984 |
|
|
|
181,636 |
|
Gross profit |
|
|
3,881 |
|
|
|
7,377 |
|
|
|
5,983 |
|
|
|
1,764 |
|
|
|
139 |
|
|
|
19,144 |
|
Segment depreciation expense |
|
|
4,642 |
|
|
|
— |
|
|
|
382 |
|
|
|
441 |
|
|
|
143 |
|
|
|
5,608 |
|
Segment Profit |
|
$ |
8,523 |
|
|
$ |
7,377 |
|
|
$ |
6,365 |
|
|
$ |
2,205 |
|
|
$ |
282 |
|
|
$ |
24,752 |
|
14
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
|
|
For the Three Months Ended March 28, 2021 |
|
|
|
Polyester |
|
|
Asia |
|
|
Brazil |
|
|
Nylon |
|
|
All Other |
|
|
Total |
|
Net sales |
|
$ |
82,668 |
|
|
$ |
48,483 |
|
|
$ |
25,704 |
|
|
$ |
20,778 |
|
|
$ |
1,233 |
|
|
$ |
178,866 |
|
Cost of sales |
|
|
75,446 |
|
|
|
41,330 |
|
|
|
15,106 |
|
|
|
20,341 |
|
|
|
1,048 |
|
|
|
153,271 |
|
Gross profit |
|
|
7,222 |
|
|
|
7,153 |
|
|
|
10,598 |
|
|
|
437 |
|
|
|
185 |
|
|
|
25,595 |
|
Segment depreciation expense |
|
|
5,036 |
|
|
|
— |
|
|
|
299 |
|
|
|
441 |
|
|
|
161 |
|
|
|
5,937 |
|
Segment Profit |
|
$ |
12,258 |
|
|
$ |
7,153 |
|
|
$ |
10,897 |
|
|
$ |
878 |
|
|
$ |
346 |
|
|
$ |
31,532 |
|
|
|
For the Nine Months Ended March 27, 2022 |
|
|
|
Polyester |
|
|
Asia |
|
|
Brazil |
|
|
Nylon |
|
|
All Other |
|
|
Total |
|
Net sales |
|
$ |
275,809 |
|
|
$ |
161,817 |
|
|
$ |
91,106 |
|
|
$ |
65,863 |
|
|
$ |
3,587 |
|
|
$ |
598,182 |
|
Cost of sales |
|
|
263,194 |
|
|
|
138,958 |
|
|
|
67,657 |
|
|
|
63,187 |
|
|
|
3,055 |
|
|
|
536,051 |
|
Gross profit |
|
|
12,615 |
|
|
|
22,859 |
|
|
|
23,449 |
|
|
|
2,676 |
|
|
|
532 |
|
|
|
62,131 |
|
Segment depreciation expense |
|
|
13,668 |
|
|
|
— |
|
|
|
1,042 |
|
|
|
1,320 |
|
|
|
458 |
|
|
|
16,488 |
|
Segment Profit |
|
$ |
26,283 |
|
|
$ |
22,859 |
|
|
$ |
24,491 |
|
|
$ |
3,996 |
|
|
$ |
990 |
|
|
$ |
78,619 |
|
|
|
For the Nine Months Ended March 28, 2021 |
|
|
|
Polyester |
|
|
Asia |
|
|
Brazil |
|
|
Nylon |
|
|
All Other |
|
|
Total |
|
Net sales |
|
$ |
228,440 |
|
|
$ |
130,898 |
|
|
$ |
72,563 |
|
|
$ |
47,815 |
|
|
$ |
3,431 |
|
|
$ |
483,147 |
|
Cost of sales |
|
|
205,691 |
|
|
|
112,639 |
|
|
|
49,375 |
|
|
|
46,318 |
|
|
|
3,034 |
|
|
|
417,057 |
|
Gross profit |
|
|
22,749 |
|
|
|
18,259 |
|
|
|
23,188 |
|
|
|
1,497 |
|
|
|
397 |
|
|
|
66,090 |
|
Segment depreciation expense |
|
|
13,909 |
|
|
|
— |
|
|
|
1,050 |
|
|
|
1,321 |
|
|
|
489 |
|
|
|
16,769 |
|
Segment Profit |
|
$ |
36,658 |
|
|
$ |
18,259 |
|
|
$ |
24,238 |
|
|
$ |
2,818 |
|
|
$ |
886 |
|
|
$ |
82,859 |
|
The reconciliations of segment gross profit to consolidated income before income taxes are as follows:
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
March 27, 2022 |
|
|
March 28, 2021 |
|
|
March 27, 2022 |
|
|
March 28, 2021 |
|
Polyester |
|
$ |
3,881 |
|
|
$ |
7,222 |
|
|
$ |
12,615 |
|
|
$ |
22,749 |
|
Asia |
|
|
7,377 |
|
|
|
7,153 |
|
|
|
22,859 |
|
|
|
18,259 |
|
Brazil |
|
|
5,983 |
|
|
|
10,598 |
|
|
|
23,449 |
|
|
|
23,188 |
|
Nylon |
|
|
1,764 |
|
|
|
437 |
|
|
|
2,676 |
|
|
|
1,497 |
|
All Other |
|
|
139 |
|
|
|
185 |
|
|
|
532 |
|
|
|
397 |
|
Segment gross profit |
|
|
19,144 |
|
|
|
25,595 |
|
|
|
62,131 |
|
|
|
66,090 |
|
Selling, general and administrative expenses |
|
|
14,389 |
|
|
|
14,581 |
|
|
|
39,025 |
|
|
|
38,570 |
|
Benefit for bad debts |
|
|
(169 |
) |
|
|
(184 |
) |
|
|
(489 |
) |
|
|
(1,330 |
) |
Other operating (income) expense, net |
|
|
(831 |
) |
|
|
2,582 |
|
|
|
(2 |
) |
|
|
4,236 |
|
Operating income |
|
|
5,755 |
|
|
|
8,616 |
|
|
|
23,597 |
|
|
|
24,614 |
|
Interest income |
|
|
(492 |
) |
|
|
(159 |
) |
|
|
(944 |
) |
|
|
(471 |
) |
Interest expense |
|
|
709 |
|
|
|
885 |
|
|
|
2,140 |
|
|
|
2,589 |
|
Equity in earnings of unconsolidated affiliates |
|
|
(41 |
) |
|
|
(528 |
) |
|
|
(385 |
) |
|
|
(751 |
) |
Recovery of non-income taxes, net |
|
|
815 |
|
|
|
— |
|
|
|
815 |
|
|
|
— |
|
Income before income taxes |
|
$ |
4,764 |
|
|
$ |
8,418 |
|
|
$ |
21,971 |
|
|
$ |
23,247 |
|
There have been no material changes in segment assets during fiscal 2022.
22. Supplemental Cash Flow Information
Cash payments for interest and taxes consist of the following:
|
|
For the Nine Months Ended |
|
|
|
March 27, 2022 |
|
|
March 28, 2021 |
|
Interest, net of capitalized interest of $322 and $145, respectively |
|
$ |
1,980 |
|
|
$ |
2,395 |
|
|
Income tax payments, net |
|
|
11,626 |
|
|
|
4,039 |
|
Cash payments for taxes shown above consist primarily of income and withholding tax payments made by UNIFI in both U.S. and foreign jurisdictions, net of refunds. The nine months ended March 27, 2022 includes an income tax payment of $3,749 related to the recovery of non-income taxes described in Note 7, “Other Current Assets.”
Non-Cash Investing and Financing Activities
As of March 27, 2022 and June 27, 2021, $1,981 and $2,080, respectively, were included in accounts payable for unpaid capital expenditures. As of March 28, 2021 and June 28, 2020, $1,241 and $630, respectively, were included in accounts payable for unpaid capital expenditures.
15
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
During the nine months ended March 27, 2022 and March 28, 2021, UNIFI recorded non-cash activity relating to finance leases of $1,764 and $740, respectively.
16